LTC PARTNERSHIP PROGRAMS Presented by: Jeff Sadler

1. LTC PARTNERSHIP PROGRAMS Presented by: Jeff Sadler

2. LTC PARTNERSHIP PROGRAMS What is a Long-Term Care Partnership Program? Why are they important?

3. LTC PARTNERSHIP PROGRAMS • Endorsed by state • Help consumers see LTC Insurance as ASSET PROTECTION • Provide relief for the Medicaid program • Should assist in making long-term care sales

4. LTC PARTNERSHIP PROGRAMS • How do partnership plans accomplish this? • It all comes down to who will be responsible to pay for long-term care expenses incurred in the future.

5. WHO PAYS NOW? • State governors’ concerns today focus on rising Medicaid costs • Medicaid: 47 percent • Out-of-pocket: 21 percent • Medicare: 17 percent • Private LTC insurance: 10 percent • Other: 5 percent

6. MEDICAID Let’s recap: Medicaid: • Is 1965 public program for the poor • Has now become the default payer of LTC costs • Approves people either through the spend- down process or by artificialqualification

7. MEDICAID • Generally pays for nursing home care • Nursing home care is the primary driver today of increased Medicaid expenses • Factor in the Boomers, and …

8. MEDICAID … SOMETHING HAS TO GIVE

9. MEDICAID AND LTC • Medicaid’s problems are not new • Evidence in early 1980s that growing LTC expenses would over-burden this public program for the poor • Study was appointed in the 1980s to investigate possible solutions to the coming crisis

10. RWJ FOUNDATION • The Robert Wood Johnson Foundation commissioned a study in the 1980s • Report issued in 1987

11. RWJ FOUNDATION The RWJ Foundation concluded that the best path for Medicaid to avoid a continued run-up in LTC expenses was to encourage consumers in the matter of personal responsibility by purchasing private LTC insurance to take the pressure off the Medicaid program.

12. LTC PARTNERSHIP PROGRAMS • The result of this “encouragement” were insurance plans called LTC Partnership Policies • States would give specific approval to LTC insurance contracts meeting certain standards

13. THE PARTNERSHIP PREMISE • To reduce Medicaid expenditures by delaying or eliminating the need for people to rely on Medicaid • Encourage purchase of private LTC insurance by giving an incentive for the consumer to buy

14. CONSUMER INCENTIVE • By purchasing a LTC policy sold through the Partnership, asset protection from Medicaid would equal the amount of LTC insurance coverage • This amount of assets would not have to be spent down to qualify for Medicaid

15. EXAMPLE • Consumer buys private LTCI with a total benefit value of $250,000 • Consumer needs care • Consumer uses LTCI first • If they use up the entire $250,000, their application to Medicaid will allow them to keep that amount in addition to their primary protected assets like the home and car

16. LTC PARTNERSHIP PROGRAMS • Based on the RWJ Study, four states decided to formally develop partnership programs and encourage consumers to buy LTC insurance • Two distinct models emerged

17. PARTNERSHIP MODELS • Dollar-for-dollar: dollar value of the protected assets equals the dollar value of benefits paid by LTC insurance contract • Total Assets model: Required purchase of set minimum LTC coverage (6 years total) in exchange for complete protection of all assets

18. THE FOUR STATES • Connecticut: dollar-for-dollar model • California: dollar-for-dollar model • New York: total asset protection • Indiana: hybrid of the two

19. WHY NO MORE STATES? • Concern that a public program was endorsing private insurance • Believed it would increase Medicaid costs rather than reduce them by drawing attention to the program’s coverage • Would mostly benefit wealthier individuals who could afford the private insurance

20. OBRA 1993 • The Waxman Amendment • Prevented states from acquiring the Medicaid waiver necessary to activate a partnership plan • Iowa was stopped in mid-development

21. WHAT HAS BEEN THE RESULT FOR THESE 4 STATES? • Average age of partnership policyholders is between 58 and 63 • Majority of policyholders held assets greater than $350,000 (excluding home) • Majority of policyholders had average monthly incomes of $5,000 or more

22. WHAT HAS BEEN THE RESULT FOR 4 STATES? • Over 180,000 policies purchased • Over 2,000 claims • Less than 5 percent ultimately applied for Medicaid

23. CONNECTICUT • Latest year surveyed: 2003-04 • 34 percent of purchasers of partnership plans had assets between $100,000 and $350,000 • Average total benefit: $247,394 • 97 percent were first-time purchasers

24. NEW YORK • Now offering 4 different partnership models • 2 Total Asset Protection • 2 Dollar-for-Dollar • Still have minimum specified benefits, but now drawing broader appeal

25. CALIFORNIA • Average age at purchase: 57 • 56 percent were female • 97 percent were first-time purchasers • 38 percent bought policies with a minimum 5-year benefit period

26. INDIANA • Hybrid model: Total asset protection if purchase made for benefit amount of $188,000 or greater Dollar for dollar protection for policies less than $188,000

27. DEFICIT REDUCTION ACT OF 2005 • 1993 ban on LTC Partnership Programs lifted and • Changes made to Medicaid eligibility

28. DEFICIT REDUCTION ACT OF 2005 • LTC goals were: • Make it more difficult to qualify for Medicaid program artificially, and • Encourage people to look to another source for LTC expense funding

29. DRA ’05: NEW MEDICAID RULES • All transfers must occur 5 years prior to Medicaid application date • Penalty period now imposed from the date of Medicaid eligibility – not the date of the actual transfer

30. ASSET TRANSFERS • Medicaid application date: August 1, 2006 • Look-back window: retro to August 1, 2001 • Transfer of $180,000 made February 1, 2002 • Penalty! $180,000 divided by $3,300 = 54 months • Penalty used to be measured from date of transfer – 2/1/02 + 54 months = eligibility on 8/1/06 • NOW – Penalty applied as of 8/1/06 – eligibility will be on 2/1/2011

31. NEW MEDICAID RULES • Medicaid application can now be denied for person with home equity greater than $500,000 ($750,000 in some states) • Annuities are now assets. Policyowner’s state of residence now required to be listed as a remainder beneficiary.

32. NEW PARTNERSHIP ACTIVITY • Now – there will be more than FOUR states • Federal Medicaid waivers will be granted • Each state that wants to offer LTC partnership policies must file a state plan amendment with the Department of Health & Human Services • Unless related to this process, no additional state legislation is necessary

33. STATE PLAN AMENDMENT • Policies cover state residents • Policies are tax-qualified • Policies adhere to NAIC provisions • Policies contain specified inflation options • LTC agents have appropriate training • Insurers subject to reporting requirements

34. WHO’S READY TO GO? • Colorado Massachusetts • Florida Michigan Oklahoma • Georgia Minnesota Pennsylvania • Idaho Missouri Rhode Island • Illinois Montana South Dakota • Iowa Nebraska Virginia • Maryland New Jersey Washington

35. GRANDFATHERED • Connecticut • California • New York • Indiana

36. CMS TEMPLATE Clarification of: • Inflation protection (ages 61+) • Exchanges vs. grandfathering • Reciprocity • Agent training for certification • Uniformity